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Not in my area.
Unless you are a minimum wage worker, incomes rise over time. Maybe not by much some years, but they DO rise.
Not if your income goes to zero as a result of job loss. Normally, that's not a permanent condition, but you can still lose your house in the meantime. And a lot of people who lose their jobs are not able to make as much in their new jobs as they did in their old ones.
A big enough down will give an extra cushion should the need to liquidate happen in a down market.
The least I have ever put down as a rule is 25%...
Totally depends on circumstances. We only put 10% down on our first house that we bought 3 years ago and boy am I glad we did.
We bought a house well below what we were approved for, and had enough for 20% down comfortably but that would have meant us pulling everything out of our after-tax investment accounts and leaving just our 6 month living expenses in our money market (I would never, ever pull anything out of our 401k or Roth IRAs to buy a house of course). With the market as low as it was and our interest rate around 4.5%, I saw the writing on the wall, and we've made out a lot better on that other 10% by not dumping all 20% into the house right away.
When you are getting into something for 10, 15, 20, or 30 years, I think you do have to evaluate each decision individually and the timing was right for us to put down less and invest more then.
Last edited by Sunbather; 09-23-2013 at 06:13 AM..
Totally depends on circumstances. We only put 10% down on our first house that we bought 3 years ago and boy am I glad we did.
We bought a house well below what we were approved for, and had enough for 20% down comfortably but that would have meant us pulling everything out of our after-tax investment accounts and leaving just our 6 month living expenses in our money market (I would never, ever pull anything out of our 401k or Roth IRAs to buy a house of course). With the market as low as it was and our interest rate around 4.5%, I saw the writing on the wall, and we've made out a lot better on that other 10% by not dumping all 20% into the house right away.
When you are getting into something for 10, 15, 20, or 30 years, I think you do have to evaluate each decision individually and the timing was right for us to put down less and invest more then.
I don't know of anyone that put down 25% during the bubble and walked away from their mortgage...
Do know a lot of homes where the owner with little down or HELOC loans owed far more than the home was worth and plenty did walk because it "Wasn't worth it"
A very successful lawyer bought another home in his exclusive enclave and then walked on the one he was living in... had no qualms about it.
My point is with a significant down... it is hard to find yourself upside down.
Of course, some of those that bailed are now looking at the same homes and seeing not only has the market recovered... it has also appreciated.
I don't know of anyone that put down 25% during the bubble and walked away from their mortgage...
Do know a lot of homes where the owner with little down or HELOC loans owed far more than the home was worth and plenty did walk because it "Wasn't worth it"
A very successful lawyer bought another home in his exclusive enclave and then walked on the one he was living in... had no qualms about it.
My point is with a significant down... it is hard to find yourself upside down.
Of course, some of those that bailed are now looking at the same homes and seeing not only has the market recovered... it has also appreciated.
I never understood the logic of just walking away. A home actually has value in and of itself as a source of shelter. The monetary value of the home may change over time, but it still holds the same value to you, hopefully you paid what you thought the home was worth at the time, and if that is the case that value shouldn't have changed to you just because other homes are flooding the resale market.
The only time I can see this being an issue is if the area the home in will be significantly changed because of the market (Ie a middle class neighborhood becomes a lower class neighborhood because of so many foreclosures, etc.) and the original "value" of the home is somehow permanently altered.
The market works both ways. So your home gained in value and now you want to make money off of it by selling and upgrading. You made money, but the value of all the property around you has also risen, so while it may seem like you made money on your "investment" you are also paying higher prices for your resulting purchase (so the net effect is probably very little). In turn, in a down market you may be selling your home at a lower value, but you can also probably pick up a house that at one time was substantially higher at a lower price as well (same type of net effect).
I also find it funny that someone would walk away from a home that decreased in value and then sink money into another home in the same down market with the thought that this home is down now, but is a good deal, because at one point in time it was worth much more. Isn't that the same thought process that just got you to walk away from your previous home?
The most we've paid for a house is 1.5 times gross income. The last 10 years, our income has exceeded the cost of our house (bought in 2006). So now have 3 houses paid for that I'm renting plus the house I live in. Have only mildly considered buying a more expensive house as I'm happy in current house. If I didn't want to retire at 57, I would probably buy a more expensive house but I've never wanted to enter retirement with a house debt.
I never understood the logic of just walking away. A home actually has value in and of itself as a source of shelter. The monetary value of the home may change over time, but it still holds the same value to you, hopefully you paid what you thought the home was worth at the time, and if that is the case that value shouldn't have changed to you just because other homes are flooding the resale market.
The only time I can see this being an issue is if the area the home in will be significantly changed because of the market (Ie a middle class neighborhood becomes a lower class neighborhood because of so many foreclosures, etc.) and the original "value" of the home is somehow permanently altered.
The market works both ways. So your home gained in value and now you want to make money off of it by selling and upgrading. You made money, but the value of all the property around you has also risen, so while it may seem like you made money on your "investment" you are also paying higher prices for your resulting purchase (so the net effect is probably very little). In turn, in a down market you may be selling your home at a lower value, but you can also probably pick up a house that at one time was substantially higher at a lower price as well (same type of net effect).
I also find it funny that someone would walk away from a home that decreased in value and then sink money into another home in the same down market with the thought that this home is down now, but is a good deal, because at one point in time it was worth much more. Isn't that the same thought process that just got you to walk away from your previous home?
The lawyer had a 1.3m loan on his home and he bought the same, or even slightly better for 800k...
So saving 500k was worth it in his mind and now the home he walked away from is about 1.25m
I live in an area where evey block had a least one Foreclosure if not more...
One of my longterm neighbors... over 35 years in their home just let it go to the bank... they had taken out many refies over the year and after her husband died... she stopped making the payments...
Another couple I know has not made a payment in 23 months and is collecting rent on two spare bedrooms... she had 800 credit score and now it is toast.
My home dropped 25% from what I paid in 2004 and is now just about back... friends asked me if I was going to walk away... told them I need to live somewhere and because of my big downpayment, I still had a little equity.
Last edited by Ultrarunner; 09-23-2013 at 02:56 PM..
No more than 100 times your monthly Free Cash Flow before Housing expenses.
Intuitively, find the money left over (after recurring expenses) you can use to spend on housing each month.. then multiply it by 100.
Basically, take your monthly take-home pay, subtract all recurring expenses (food, car payment, loan payments, insurance, misc, etc.) but disregard housing expenses for now.
Simple Example:
Take Home pay = $5000/mo (roughly equivalent to $100,000/yr before taxes)
Car payment = $300/mo.
Food = $400/mo.
Credit card and student loan payments = $400/mo.
Misc expenses = $400/mo.
Auto insurance = $100/mo.
Money left over to spend on housing = 5000 - 300 - 400 - 400 - 400 - 100 = $3400/mo.
Take Home pay = $5000/mo (roughly equivalent to $100,000/yr before taxes)
Maximum house you can afford = $340,000.
Long story short... this 3.4:1 is HIGH.
In Southern California you may have no choice but to accept this situation...
but it is still objectively high.
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